By: JAMES OSBORNE|
A group of investors led by Dallas energy and real estate mogul Ray L. Hunt made official Tuesday its push to take over Texas’ largest power utility, Oncor.
In an application filed with the Texas Public Utility Commission, the Hunt group laid out plans to buy the utility from bankrupt parent company Energy Future Holdings in a deal that values Oncor between $18 billion and $19 billion.
The filing begins what is expected to be at least a six-month review of Oncor’s rates and the group’s financial strategy for managing the utility. If successful, it will mark the end of a near-decade pursuit by Hunt, chairman of Hunt Consolidated, and his son Hunter to get control of Oncor. Oncor delivers electricity to more than 3 million customers across North and West Texas.
The deal comes out of Energy Future’s ongoing fight with creditors in U.S. Bankruptcy Court in Delaware. The former TXU Corp. filed for Chapter 11 last year, seeking protection from $40 billion in debt after a leveraged buyout in 2007 by private equity firms KKR & Co. and TPG.
A restructuring plan filed by Energy Future in July laid out plans to spin off its power plants and retail business TXU Energy to senior creditors and sell its 80 percent ownership stake in Oncor to the Hunt group. That group also includes myriad investment firms engaged in the bankruptcy and the Texas state teachers pension fund.
Opposing creditors have grappled with the company over the risk that the PUC might not grant the Hunts the rates they need to complete the deal. But Energy Future scored a critical victory earlier this month when a federal judge ruled the plan was ready to go to trial, with a start date set for Nov. 3.
“We believe our proposed plan represents the best path forward for Oncor, its employees and the communities they serve,” Hunter Hunt, co-CEO of Hunt Consolidated, said in a prepared statement Tuesday.
But the plan is already showing some wrinkles.
In testimony filed with the application Tuesday, Oncor CEO Bob Shapard said he generally supported the Hunts’ ownership but believed there could be some negative consequences to their plan to operate as a real estate investment trust.
A mechanism for diverting tax liability from the corporation to its shareholders, a REIT would split the company in half, with one half owning the power lines and the other half operating them. Shapard said that structure could create problems around everything from how much it costs to borrow money for new power lines to pension liability for Oncor’s more than 3,000 employees.
“Under no scenario should there be material risk to the continued existence of Oncor’s employee pension plan,” he said in the testimony.
In addition, the PUC must decide whether to continue Oncor’s current rates under new owners.
A REIT structure has never been used by a utility of Oncor’s scale, and ratepayer advocates are expected to press state regulators to reward at least some of those savings to customers.
So far, utility commissioners have been vague on what they plan to do. In a memo last week, Commissioner Ken Anderson wrote that he did not have a problem with Oncor operating as a REIT, “so long as ratepayers either benefit, incur no unrewarded risk or otherwise suffer no harm.”